Wednesday 18 April 2012

Project Control - Variances

A major part of the work of my company (Oaksys Tech Ltd) is project control. The process of fit out of a trading floor or data centre often involves close contact with a Main Contractor from a constructions firm. The Main Contractors have long experience in the project control of variances. It is inevitable that during the course of a project there will be changes to the original plan requested by the project team or the client management. Such changes will normally involve additional expenditure and/or a variation in the project time scale. There's nothing wrong in having variances provided the change to the project plan is properly authorised and agreed with the business or the part of the organisation who is ultimately paying for the project. The provision of funds for variations does not appear as if by magic, the agreement to pay should be documented. Similarly the acceptance of a variation in project time scale, if any, some be documented. Be sure if there are changes in a construction project the Main Contractor will document those and expect additional payment for those variations.

The project manager should track variances as an ongoing part of the project management process. He/she should avoid being surprised at the end of the project with a large list of project variances and a demand for supplemental payment. It is all too easy for the person requesting the original change to disappear from the project team prior to the end of the project leaving little evidence of why the change was requested and who agreed to fund the change/variance. Uncertainty over the reason for the change can lead to heated arguments and even expensive arbitration or legal fees.

The Main Contractor will sub-contract work to other contractors. The process is loaded with opportunity for mistakes, miscommunication and the use of out of date project specifications. In effect the project hasn't changed but the mistakes will have caused delay and additional expenditure. Delay or mistakes by one sub-contractor can affect other sub-contractors, leading to variations claims by them. The management team of the Main Contractor will have to explain to their owners why the cost of those mistakes will be deducted from the expected profits. In other cases the Main Contractor may not have delivered parts or all of their project on time leading to their client expecting compensation or withholding payments. Sometimes the Main Contractor will report those variations as having been caused by the client in an attempt to extract further payment from the client or to avoid paying compensation. It is important that the project manager challenges and rejects any such false claims of variation. Such challenges should occur as an ongoing process during the life of the project. Variations on the part of the contractor should be documented in an agreed process between the client project management team and the Main Contractor.

Ultimately the business rule of  "no payment without purchase order" should apply. In the case of a trading floor/ data centre project the Purchase Order might be substituted by a variation document. As with purchase orders, there must be agreement from the funds holder/owner that the variation in expenditure is permitted.  The big challenge to the Project Manager is ensuring there are no project delays caused by waiting for variation approval.

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